Arabica Coffee Closes Lower on Demand Concerns

September arabica coffee (KCU22) on Friday closed down -1.20 (-0.55%), and Sep ICE Robusta coffee (RMU22) closed up +15 (+0.74%).

Coffee prices on Friday settled mixed, with robusta climbing to a 4-week high.  Arabica was under pressure Friday on concern that a recession in the U.S. may curb demand for commodities, including coffee after Thursday's data showed U.S. Q2 GDP unexpectedly contracted for a second quarter.  Robusta pushed higher Friday after the dollar index (DXY00) dropped to a 3-1/2 week low.

Coffee prices have support on concern about lower coffee yields in Brazil.  Somar Meteorologia Monday reported that Minas Gerais received no rain last week.  Minas Gerais accounts for about 30% of Brazil's arabica crop.  

Arabica coffee is also seeing underlying support from tight ICE coffee inventories after ICE monitored arabica coffee inventories Thursday fell to a new 23-year low of 700,050 bags.

Abundant robusta coffee supplies are bearish for prices.  Vietnam's General Department of Customs reported Friday that Vietnam's 2022 coffee exports from Jan-July coffee were up +18.4% y/y at 1.144 MMT.  Vietnam is the world's biggest producer of robusta coffee beans.  The USDA June 7 revised its 2021-22 coffee production estimate for Vietnam upward to 31.58 million bags from 31.1 million bags but said 2022/23 production would fall by -2.2% y/y to 30.9 million bags.  

In a bearish factor, the Green Coffee Association reported July 15 that U.S. June green coffee inventories rose +0.8% m/m and +4.7% y/y to a 10-month high of 6.05 million bags.  

Signs of increased global coffee supplies are bearish for prices after the International Coffee Organization (ICO) reported July 5 that global 2022 coffee exports for Oct-May were up +1.3% y/y at 88.506 mln bags.  Also, the Colombia Coffee Growers Federation reported on July 6 that Colombia's June coffee exports rose +6% y/y to 939,000 bags.  Colombia is the world's second-largest producer of arabica beans.  Also, Cecafe reported on July 6 that Brazil's June green coffee exports rose +0.6% y/y to 2.793 mln bags.

According to Thursday's data from Safras and Mercado, Brazilian coffee farmers harvested 75% of the 2022/23 coffee crop as of July 26, slower than the 5-year average of 80%.

In a bearish factor, the USDA, in its bi-annual report released on June 23, projected that 2022/23 global coffee production would climb +4.7% y/y to 174.95 mln bags, primarily due to Brazil's arabica crop entering the on-year of the biennial production cycle.  The USDA projects that 2022/23 global coffee ending stocks will climb +6.3% y/y to 34.704 mln bags.

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